The Mortgage Guy educates and … well

Main menu

Post navigation

Handling Cash

I have cash, it’s my money, I earned it what’s your problem? Why can’t I use it for my down payment or closing cost?

This is actually a very common issue, question and concern for both the consumer and loan originator. I estimate this happens in one out of every seven transactions which experiences a cash issue.

Loan originator: Asking an applicant for a mortgage loan; What are you using for funds for your down payment and closing cost?

Applicant: I have cash.

Loan Originator: When did you get the cash? Or We can’t use cash.

From the applicants, the responses are as different as their finger prints. I have worked with business owners who have all cash transactions for this business. Such as the one who owns several ice machines throughout the county. As you can imagine people use small bills and coins for every bag of ice purchased. The business owner deposits hundreds of dollars of cash daily into his account and on the business day following a holiday weekend the cash deposits are in the thousands. This business owner will have consistent deposits of cash. He will also have proof of ownership of the machines and locations of the machines with counters that can verify his cash deposits as legitimate funds for a transaction. This is no different for the owners of coin operated car washes and laundromats.

There are other types of cash business such as a pool service or lawn care companies. A lot of times home owners pay these business owners in cash. A good business owner will have matching invoices with address and homeowner names on the voice to match the cash deposits. With consistent business transactions and consistent matching deposits these founds are easier to verify for use with your home purchase with a mortgage loan.

Please don’t mistake this as a lesson on how to wash money or how to beat “Anti-Money-Laundering” rules, but rather a way to be responsible and having your funds made accountable and usable for your home purchase.

Recently I met someone who was told by a loan originator to simply give your cash to a family member and at the time of closing they can gift it back to you for your down payment and closing cost. This is a serious mistake and bad advice from a Mortgage Loan Originator. This is a major violation of many rules, regulations, and laws. I am not an attorney or trying to be one nor any part of any law enforcement agency, I am just an experienced Loan Originator who cares about the consumer and the people I work with.

First the loan originator may have advised you or told you to commit loan fraud and violate “Anti-Money-Laundering” laws. The lender could possibly call your loan and report you to the State and or Federal Government (FBI). You could be arrested, fines and imprisoned.

Second, here is the sad part is you just involved a family member, who out of loved just wanted to help you and now, they may be part of your fraudulent action. Just because you were following advice from a loan originator just trying to generate a commission.

Remember anyone who tells you how to play the shell game with your money may be giving you bad advice. What the loan originator did is most likely loan fraud in itself and maybe be subject to serious disciplinary action by state and federal licensed authorities.

So, you’re asking what should I do with my cash? Firstly, be responsible. Most people start off innocent enough, not understanding what they are doing. One of the most common scenario’s I have seen is the sale of property such as a boat, car or motorcycle. Often times these transactions are with cash. You should have a bill of sale that matches the amount of cash you receive and keep a copy of any title as well. It would also be very smart to get a copy of that buyer’s government issued photo ID to associate with the cash you are receiving.

The exact amount of cash you receive and that matches your invoice or sale of title should be deposited into a bank. A mistake people make is taking, for example $7,000 in cash and they have a matching bill of sale but yet only deposit $4500 in to their bank to avoid any type of federal reporting by the bank. You now have just rendered that cash totally useless for your home purchase. The cash deposit must match your bill of sale or transfer of title and must also be deposited within a very reasonable time frame of the transaction generally under three business days.

Often times people withdraw cash over a period of several months and put it in a coffee can for a future planned vacation. Only later to have cancelled the vacation in hopes of buying a new home instead with the money. This sounds innocent enough but does cause red flags every where when you need to use the money as a lump sum. If your money is good and you have nothing to fear, it’s best to be responsible and deposit the money in to your checking or savings account. This money needs to be in your account for over sixty days before you can use it for your home purchase. If this is a large sum of money it gives the bank time to do their proper reporting. Remember good money never has a problem being accounted for.

Don’t put yourself or a family member in a bad position just because a Realtor or Mortgage Loan Originator wants to get a fast commission. Ask questions and if it smells bad it probably is. Seek professional legal advice, talk to a CPA if you feel you need to. Don’t try to outthink it, keep it simple and we will see you at a happy closing table.

30FRM

30 FRM stands for 30 year fixed rate mortgage.

The reason this was chosen was because at the time of writing interest rates are close to all time lows. The only logical direction they can head is up. As interest rates rise, borrowers will need to pay more each month.

With this in mind and although there will always be exceptions, I currently feel that a 30 year mortgage, where the borrower repays both interest and principle at a fixed rate, is probably going to be the most popular as well as the most sensible choice for many families.

Martin Remillard is a licensed loan originator NMLS# 343653

Disclaimer

This blog is only a view point or opinion of the writer(s) and not an endorsement and has not been endorsed by any lender or employer past or present of the writer(s). This is not to be used for anything formal or any legal or binding contractual situation, buyer / borrowers should always seek professional legal advice / counsel. This blog is not directed or intended to be toward any company or individual and if all or any similarity is purely coincidental. However, politicians are subject to satire.